Here are my key Takeaways for 2018.
It was the year in which Netflix accelerated its challenge to the entire film and television eco-system, with the Amazon behemoth adding to the disruptive force of online video.
1.Channels Under Threat.
- Factual commissions boomed since the mid-Eighties.
- A tiny documentary market exploded into the global Unscripted industry that enjoys $ billions in annual commissions, co-productions and acquisitions.
- This new scale was primarily driven by the rise of the Cable / Satellite channels.
- Their eco-system is based on two revenue streams: advertising (which fluctuates) and subscriptions, which are locked into multi-year contracts.
- 2018 saw an acceleration in Cord-cutters, Cord-nevers and Skinny Bundle subscribers, particularly among the industry’s most valuable, young subscribers.
- Most channels saw year-to-year declines in affiliate revenues as their subscriber base retreated.
- This in turn limited their potential audience, and therefore their revenues from ratings-dependent advertising.
- The psychology of channels execs has shifted from the optimism of only 5 years ago to anxiety for the future of their network, and amidst rolling layoffs, for their jobs.
- As 2018 progressed, my prediction for the Cab/Sat channel sector shifted from “Long, Slow, Sunset” to a fear of something like the “Napster Disruption” that decimated the Music industry and its CD-based Retail model.
2.And That Means Pressure for Producers
- Programming is the biggest expense category for Cab/Sat channels.
- Established channels have been expected to commission 200-600 new hours a year to refresh their primetime schedules.
- With revenues streams shrinking, the channels are commissioning fewer programs.
- Many digital channels stopped commissioning.
- Repeatable series and formats are increasingly more valued than one-offs and specials.
- More development, pitching and “proof of concept” costs are laid off on producers, as we discussed in a podcast about the “Pitching Arms Race” with veteran producer Michael Hoff.
- Networks like Discovery are delaying payment schedules and forcing tougher deal terms on producers.
- Sweet Spots tend to be steady, but fewer units are being ordered for series.
- Scaled up production companies are therefore more sustainable than the boutique and mid-range producers who until recently thrived in the industry.
- Newbies can forget it: Either ‘Marry Up’ with a preferred producer or go find a job!
3.Netflix. Netflix. Netflix!
- In 2018, the Cab/Sat model became “Old World”.
- Call it “SVOD”, “OTT”, “Online Video” or whatever, the “New World” is led by Netflix and Amazon Prime.
- Netflix is the dominator! 125+ million Netflix subs each pay around US$100 / year.
- Its proprietary BIG DATA operation maximizes viewing and minimizes the churn that plagues most subscription services.
- (Read my insider report on Netflix operations here!)
- It is using this enormous cashflow plus debt to blow away the competition by spending billions on Originals.
- Most of the expense is on Scripted movies, with 55+ already announced for 2019!
- Movie budgets can exceed $200 million, and involve dozens of Super A-listers ranging from Bruce Springsteen to Martin Scorsese and Meryl Streep.
- The same strategy is being applied to scripted series and original documentaries as well as Lifestyle content.
- Genre giants like David Attenborough are increasingly making Netflix their first choice for partnerships, ahead of the BBC and other legacy brands and platforms.
- Netflix is quickly moving to deliver such a vast river of original content in so many genres and quality levels that it is no longer just a rival to individual PAY-TV channels like HBO or Showtime.
- Netflix is now challenging the entire PAY-TV and Hollywood movie eco-systems.
- At $12 / month, the Netflix option is draining revenues, and hence programming budgets, out of the “Old World” eco-system and its $120 and more spent each month by subscribers to Cab / Sat systems.
Analyst Will Richmond recently cited a U.S. research survey in which respondents were asked about the source of their most recent favorable viewing experience: 30% said Netflix. 26% reported that it was one or other of all the networks in the Linear TV channel offering!
4.Netflix Cuts Documentary Acquisitions and Moves to Commissions
- My Sunny Side of the Doc Case Study and podcast about The Cleaners captures Netflix’s shift from acquisitions to Originals in the documentary category.
- In 2017 and prior years, Netflix rolled up to Sundance and other peak festivals with an open check book for acquiring completed documentaries that were finalists or award-winners.
- In 2018, the acquisitions tap was suddenly turned off, and industry participants like Christian Beetz were left standing at the altar.
- Netflix’s rapidly expanding Documentary team mainly follows the Leo DiCaprio / Virunga model that I wrote about at Thessaloniki years ago: the focus is to win Oscar and Golden Globe noms with Netflix-owned Originals that are about A-Listers or are hosted, directed or EP’d by A-List talent.
- Read a List of Netflix Documentaries.
- And listen here to my podcasts that cover Netflix with respected industry veterans Ed Hersh and John Ford.
5.Amazon Prime: “Golden Globes Help Us Sell More Shoes!” Jeffrey Bezos
- Many analysts forecast that Amazon will pass Netflix as the global leader in video entertainment.
- Prime subscriptions continue to grow, and are now past 100 Mn worldwide.
- Prime operates with a much more complex and sustainable eco-system than Netflix.
- Prime is a high-margin video distributor that offers convenient, one-stop subscriptions to a host of OTT video subscription services, like HBO.
- Prime is also evolving to become a platform, offering NFL and other sports codes, as well as scripted and factual originals.
- Amazon Prime video is nested inside a shopping service that is curated by helpful customer reviews and offers next day delivery for purchases.
- Amazon’s unique and private BIG DATA model captures and cross-links each subscriber’s entertainment and purchasing history with deep demographic data.
- Amazon is now rapidly emerging as a leading digital advertising platform, with revenues behind only Google and Facebook.
- However, Amazon leads the others in offering advertising solutions that target individuals based on their proven purchase behavior. And that is the Holy Grail of the entire digital economy!
- Prime programming has been held back by an unsettled executive suite. A new team is rapidly expanding its Originals project, first in scripted series and movies, and now in Unscripted.
- Watch out for Prime in 2019!
6.Facebook Watch Fumbles On
- I covered how in 2018 Facebook stumbled from the world’s social media BF to corporate goat.
- Mark Zuckerberg faced angry calls to step down amidst a cascade of scandals over Russian hacking, secret data partnerships, misleading Congress, and more.
- Watch is Facebook’s video platform:
- 75 million Facebook users spend at least one minute on Watch every day.
- They average 20 minutes of time spent per day, though this viewing may not be continuous.
- Less than 3.3 percent of Facebook’s 2.3 billion global users spend time on Watch. There’s still lots of room to grow.
- However, Facebook’s commissioning strategy swings back and forth from strategic partnerships with Lifestyle video publishers to commissioning bigger entertaining shows like a reboot of MTV’s Real World and a series from Catherine Zeta-Jones.
- FB’s reported video spend for 2019 ranges from US$90 Mn to $1 Bn.
- Facebook’s video fumbles tell a story of how a corporate giant, even with one with endless resources, finds it difficult to successfully build a new business outside its core competency.
- Facebook is dependent on its Newsfeed model. Its very profitable through advertising, but so far has been unable to evolve into a video platform.
- Meanwhile, video-focused Netflix is relentlessly eating up the online video economy, followed closely by Prime.
A Final Thought
- Despite the challenging business environment, the global documentary and unscripted sector is responsible for $ billions in annual productions and sales.
- It will continue to offer opportunities of a scale that I could not have imagined when I entered the workforce decades ago.
- And there are more 2018 Takeaways to come in future posts.
- Updated August 2018
Original analysis and coverage from DocumentaryBusiness.com
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